Europe / Euro Zone
On the whole, economic growth in Europe remained moderate during the business year 2019/20 to date, but began to lose some of its momentum toward the end of the third quarter owing primarily to developments in the manufacturing industry which, in addition to weak domestic demand especially from the automotive industry, suffered from weak global growth. Europe’s export-driven industries were increasingly exposed to the global trade conflicts and the resulting trade barriers in a number of countries, above all the United States and China.
Private consumption in Europe, however, remained positive throughout the business year to date. Good employment levels with low unemployment, wage gains, and the resulting growth in household incomes as well as low interest rates have supported private purchasing power. The leading economic indicators stabilized toward the end of the third quarter of the business year 2019/20 despite growing concerns that the negative performance of industrial sectors might affect consumption as well.
The weak performance of the manufacturing industry presents a major challenge for voestalpine, because about two thirds of its revenue is generated in Europe. Earnings were impacted especially by the downward trend in automotive production—the Group’s key market segment.
North America / USA
The growth trend in North America continued unabated during the first nine months of the business year 2019/20 despite the escalating trade war with China. Just as in Europe, private consumption drove the positive development of the U.S. economy on the whole. The continued growth of the labor market led to employment highs and rising household incomes which, in turn, helped to boost private purchasing power yet further. The “Phase One Trade Deal” between the United States and China that was signed toward the end of the reporting period has stabilized bilateral trust and should hold off any further escalation of the trade conflict with China for the time being.
The manufacturing sector was weak, even in North America, and exposed to a declining trend throughout the business year 2019/20. It is not surprising that both exports and commerce suffered from the global distortions and impediments to trade.
While voestalpine benefited from the altogether positive developments in North America throughout most of the current business year, the economic environment began to deteriorate toward the end of the reporting period. In addition to the protectionist Section 232 tariffs, this development is rooted particularly in the weak performance of the oil and natural gas industry.
South America / Brazil
After starting out the current business year on a positive note, the Brazilian economy barely registered any growth during the summer months. It did not regain its momentum until the third quarter of the business year 2019/20. In addition to stronger private consumption, there was also an uptick in investments. The weakening of the Brazilian currency supported local export-driven industries, even though exports remained at a very low level overall. For the most part, this development was related to the country’s most important export commodity—iron ore—which suffered a major downturn after the catastrophic dam failure in the spring of 2019 and recovered but slowly throughout the business year to date. voestalpine’s Brazilian entities delivered solid performance overall in this challenging environment.
Asia / China
Over the course of the current business year, China’s economic growth was supported largely by the construction industry. Governmental construction and infrastructure programs kept demand high in this sector. The consumer goods industry, however, displayed little momentum, and the automotive industry was down significantly for the second year in a row. The same applied to exports, given the escalating trade conflicts.
voestalpine’s Chinese entities profited from the state’s infrastructure projects in the railway sector. As regards tool steel, the current weakness of both the consumer goods and automotive industry was reflected in declining demand, which did not stabilize until the end of the reporting period. The country’s construction boom also had the effect of pushing the production of crude steel and thus the demand for iron ore to record highs. In turn, this brought about worldwide increases in the price of iron ore, given China’s globally dominant position in steel production.
On the whole, voestalpine was confronted with the gradual dampening of economic sentiment throughout the business year 2019/20. Aside from the direct and indirect ramifications of the escalating trade war, the accelerating downturn in the automotive industry became a growing challenge. Europe—voestalpine’s most important market—was the most unfavorable environment in this respect. Add to that the difficulties resulting from the slowdown in North America’s manufacturing sector in conjunction with the Section 232 trade barriers. While certain elements of the Chinese economy provided a positive impetus to voestalpine, the record level of crude steel production led to rising iron ore prices worldwide. In turn, this put pressure on the entire European steel industry and thus the financial performance of voestalpine’s steel plants in Europe.
But the broad positioning of voestalpine’s market and product portfolio shows its strength in times of economic challenges. The Group’s rail technology, aerospace industry, storage technology systems, and welding systems segments all delivered good performance throughout the first nine months of the current business year—despite the altogether difficult economic environment.
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